The Perfect API Storm

API management services can be vital to the success of a business. A company approaches this service differently based on its size or needs. As APIs continue to be used in different ways, a hybrid model -- balancing security requirements and access flexibility -- has become popular. API management firms facilitate cross-platform API interoperability. They also offer API strategy advisory services.

By Harry Wang
Sep 3, 2014 7:17 AM PT

Smartphones, tablets and other wireless devices have made it possible for consumers to access the Internet from almost anywhere in the world -- but apps are the tools that specifically drive usage, by offering an easy-to-use interface. As a result, consumers are getting accustomed to accessing the Internet using apps instead of a browser.

Businesses have addressed this change in behavior by serving customers through their mobile devices, which has spurred widespread use of application programming interfaces, or APIs.

From a technical perspective, APIs connect apps to the Web and link apps to other apps (e.g., mashups). From a business perspective, APIs connect companies with their partners, customers, suppliers and other affiliates.

Innovations through APIs have given rise to disruptive services and business models. APIs are one of the driving forces of mobile disruption, and APIs allow businesses to enable new business collaboration and revenue opportunities.

Regardless of the size of the business, or whether APIs are private or open, APIs require resources to manage and support both the technology and the ongoing relationships with developers.

A smaller company most likely will manage its APIs in-house, which typically will limit the scope of its offering. Large and medium-sized companies, which need a broad footprint, will outsource tasks to API management firms. These firms are experts on API technology and the related processes.

API Management Services

API management creates API interoperability throughout an industry. A management firm can combine APIs from different operators, no matter who develops the apps. The firm also facilitates cross-operator settlements. API management firms enter this emerging market through partnerships, acquisitions, or in-house development. They offer three main services:

API Analytics and Reporting -- Tracks key business performance metrics, such as volumes of API traffic, user registrations, and business transactions; provides API usage and trend reports; and analyzes API usage by partner or app type.

API Management Market

Retail and media companies were the first to outsource API management, but the demand is increasing. Today's industry serves a variety of different companies ranging from manufacturing, healthcare, travel, and financial services to government, telecom, and business services.

The third-party API management solution provider industry is very concentrated; fewer than 10 companies collectively control 90 percent of the API management business. Reputation and business scale -- the key factors for success -- create a barrier for new companies to enter the market.

API management firms currently compete and market their services to clients by stressing their ability to target customers, as well as on metrics such as performance and implementation flexibility.

Targeting customers: API management firms can target different customers, from large enterprises to small- and medium-sized firms. The type of customer can affect service fees. Those focusing on large enterprises usually charge multiyear service license fees, whereas those targeting smaller firms can offer no-frill, usage-based subscription services.

Performance: API management firms compete on service comprehensiveness and platform scalability. Major differentiation factors include the ability to process a large volume of API calls, to safeguard data security, and to report detailed API usage data.

Implementation flexibility: API management firms stress the ability to deploy their API platform in different environments, such as a customer's data center (on-premises); as a hosted service in a private or public cloud (e.g., Amazon AWS); or through a hybrid model in which API traffic management and policy control are local, and the developer portals and API reporting and analytics functions are hosted in the cloud. The ability to offer all three delivery options is a differentiating factor, but it requires substantial investment in infrastructure support and a modular design of the API management platform, as well as high adaptability to legacy backend IT systems.

Trends in API Management Industry

API management services can be vital to the success of a business. A company approaches this service differently based on its size or needs. For instance, enterprise software developers and integration service providers view API management as an extension of their business in the mobile environment.

As APIs continue to be used in different ways, a hybrid model -- balancing security requirements and access flexibility -- has become popular. One of the most common hybrid use cases is to keep the control center behind a firewall and place the developer portal and reporting engine in a public cloud.

Large IT companies eventually will acquire the remaining independent API management firms, because the need to extend IT and software integration services to the mobile platform is vital to large vendors. It also will be difficult for them to adapt their current solutions or find the right talent. As a result, the simplest approach to fill the gap is to acquire an existing solution provider.

Interoperability on the Connected Home

These steps toward a viable API strategy are necessary for companies in the connected home space, because that concept requires interoperability among multiple and disparate systems.

Devices will have to work together and perform functions in use cases outside their original purposes.

APIs are a key technology to realize this vision, and companies must have or acquire expertise in this area to ensure a solid API offering.

Harry Wang is director of health and mobile product research at
Parks Associates.